Back to Glossary
General TradingM
Market Making
The practice of continuously providing buy and sell quotes for a financial instrument to ensure market liquidity. Market makers profit from the bid-ask spread while taking on inventory risk. In crypto, automated market makers (AMMs) on decentralized exchanges perform this function algorithmically using liquidity pools.
Example
“A market making firm posted bids at $29,950 and asks at $30,050 for Bitcoin simultaneously, earning $100 per round trip while providing liquidity to other traders.”